UK Regulator Makes It Easier To Short Bitcoin

The Financial Conduct Authority (FCA) has given a green light to
cryptocurrency contracts for difference (CFDs). It’s the first time the
UK regulator has granted explicit authorization for CFDs backed by
virtual currencies.

London-based cryptocurrency liquidity
provider, B2C2, announced this morning that the FCA had authorized them
to arrange and deal in crypto-backed CFDs through their subsidiary, B2C2
OTC. This means eligible counterparties and professional clients will
be able to gain exposure to the wider crypto market through the new B2C2
CFD’s.

Contracts
for difference are commonplace in traditional markets. They are
agreements between two parties, in which the seller agrees to pay the
difference between an asset’s current market price and the price at a
designated point in the future. If the value decreases, the buyer pays
the seller.

The crypto CFD is not entirely new; other firms offer
similar derivative products. But many of these had been created with
limited regulatory oversight.

They also had very high leverages –
increasing the risk to investors. For example, Avatrade’s crypto CFD’s
offered leverage as high as 20:1. New leverage limits introduced last
summer by the European Securities and Markets Authority (ESMA) mean that
the new B2C2 CFD can only be leveraged at 2:1.

What separates a crypto CFD from a future?

Like
futures, CFDs can be used to speculate on projected prices; unlike
futures, CFD contract sizes are normally smaller, making them accessible
to smaller-scale traders.

Whereas the contract size for a CME Bitcoin future is 5 BTC, a B2C2 spokesperson told Crypto Briefing that those for its new crypto-backed CFD can start at a fraction of a bitcoin.

As
a derivative, crypto CFDs enable traders to gain market exposure
without needing to own the underlying asset. Max Boonen, founder and CEO
of B2C2, explained that this enabled clients to participate in crypto
without the headache and potential security risk of a custodial
solution.

“We are excited to have received authorisation from the FCA to introduce a cryptocurrency CFD product,” Boonen wrote in a statement. “Eligible
counterparties and professional clients can now gain derivative
exposure to the cryptocurrency markets, benefiting from the competitive
pricing and liquidity they’re accustomed to receiving from B2C2 while
avoiding the risks associated with crypto custody.”

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